ITC hits new high, tops Rs 400-mark; stock doubles in less than two years

FPIs have increased their stake in ITC for the third straight quarter to 12.87 per cent at the end of March 2023 quarter.

Shares of ITC hit a new high of Rs 401.70, gaining 1.6 per cent on the BSE in Monday’s intra-day trade in an otherwise weak market amid sustained buying interest by foreign portfolio investors (FPIs). In comparison, the S&P BSE Sensex was down 1 per cent at 59,751 at 11:01 AM.

The stock of the fast moving consumer goods (FMCG) and cigarette maker has doubled or zoomed 101 per cent from a level of Rs 199.95 on May 5, 2021. Thus far in the current calendar year 2023, ITC has rallied 20 per cent, as compared to 2.2 per cent decline in the S&P BSE Sensex.

FPIs have increased their stake in ITC for the third straight quarter. In March 2023 quarter, their holding in ITC increased to 12.87 per cent from 12.51 per cent at the end of December 2022 quarter. They held 12.25 per cent stake in September 2022 quarter, the shareholding pattern data shows.

ITC’s market capitalisation (market-cap) is now seen inching towards the Rs 5 trillion mark after a sharp upward movement in the stock. The company’s market-cap stood at Rs 4.98 trillion, the BSE data shows.

ITC has delivered resilient performance in past few quarters, despite an uncertain demand environment and sustained inflationary pressures on margins. The resilient performance was driven by good recovery in its core cigarette business (in the post COVID era), steady double-digit growth in the non-cigarette FMCG business, and accelerated growth in the hotel and paperboard, paper and packaging (PPP) business.

With softening of major commodity prices, FMCG companies have taken price cuts and grammage increases in the last six months. This is expected to result in volume uptick in January-March quarter (Q4FY23). However, rural demand conditions still remain soft compared to urban demand.

ITC (FMCG) business is also expected to see strong growth of 19.1 per cent led by higher growth in foods, discretionary & stationary segment. Cigarette volumes would continue to grow at faster pace (10- 13 per cent) led by stable taxation in last five years & curb on illicit cigarettes, according to analysts at ICICI Securities.

“We estimate 6.3 per cent revenue growth for ITC led by strong 15.9 per cent growth in cigarettes business. We estimate ~13 per cent volume growth in cigarettes. Moreover, FMCG business is expected to see 19.1 per cent sales growth led by strong traction in foods, discretionary & stationary categories. Hotels segment is estimated to grow 77.8 per cent led by post-covid pent up demand. We expect 340 bps gross margin improvement & similar expansion in operating margins to 35.3 per cent. Net profit is expected to grow 17.2 per cent to Rs 4911.8 crore,” the brokerage firm said in result preview.

A revival in cigarette demand, an improvement in the hotels business, lower input cost pressures v/s peers and attractive valuations make ITC our top pick from a one-year perspective, said Motilal Oswal Financial Services (MOFSL) in results preview.

The brokerage firm expects 13 per cent YoY volume growth in cigarettes, maintaining mid-single digit four-year average volume growth for ITC in Q4. ”We expect EBITDA margin to remain flat sequentially, but expand sharply by ~500 bp YoY. The corporate actions on demerger of businesses a key monitorable,” the brokerage firm said.

Sharekhan reiterated Buy on ITC with an unchanged price target of Rs 450. Attractive valuations at 23x/21x its FY2024/FY2025E EPS and double-digit earnings growth visibility make it our preferred pick in the large consumer goods space from a medium to long-term perspective, the brokerage firm said in March 31, 2023 report.

The recent amendment in the Finance Bill 2023 on tobacco/tobacco products is unlikely to have any material impact on tax rates on cigarettes. Volume growth momentum in the cigarette business is likely to sustain in the quarters ahead. The consistent good growth in the cigarette business, strong tailwinds in the hotel business and scale-up in non-cigarette FMCG business makes its earning visibility better compared with peers, it added.